U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1999
Commission File No. 000-23377
INTERVEST BANCSHARES CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 13-3699013
---------------------------- ----------------
(State or other jurisdiction (I.R.S. employer
of incorporation) identification no.)
10 Rockefeller Plaza, Suite 1015
New York, New York 10020-1903
----------------------------------------
(Address of principal executive offices)
(212) 218-2800
----------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days: YES XX NO .
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Title of Each Class: Shares Outstanding:
- -------------------- -------------------
<S> <C>
Class A Common Stock, $1.00 par value per share 2,186,088 Outstanding at April 30, 1999
- ----------------------------------------------- ---------------------------------------
Class B Common Stock, $1.00 par value per share 305,000 Outstanding at April 30, 1999
- ----------------------------------------------- -------------------------------------
</TABLE>
================================================================================
<PAGE>
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
FORM 10-QSB
March 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 (Unaudited) and December 31, 1998 ....... 1
Condensed Consolidated Statements of
Earnings (Unaudited) for the Quarters
Ended March 31, 1999 and 1998 ................ 2
Condensed Consolidated Statements of
Changes in Stockholder's Equity (Unaudited)
for the Quarters Ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the Quarters
Ended March 31, 1999 and 1998 ................ 4
Notes (Unaudited) to Condensed Consolidated
Financial Statements ......................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 15
Item 2. Changes in Securities and Use of Proceeds ................ 15
Item 3. Defaults Upon Senior Securities .......................... 15
Item 4. Submission of Matters to a Vote of Security Holders ...... 15
Item 5. Other Information ........................................ 15
Item 6. Exhibits and Reports on Form 8-K ......................... 15
Signatures ....................................................... 15
<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. Financial Statements
----------------------------
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
($ in thousands, except par value) 1999 1998 Change
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 3,171 $ 2,876 $ 295
Federal funds sold 554 6,473 (5,919)
Short-term investments 9,511 4,123 5,388
-------- -------- --------
Total cash and cash equivalents 13,236 13,472 (236)
Interest-bearing deposits with banks 100 199 (99)
Securities held to maturity, net
(estimated fair value of
$84,550 and $82,173, respectively) 85,327 82,338 2,989
Restricted security, Federal reserve
bank stock, at cost 233 233 --
Loans receivable (net of allowance
for loan loss reserves of
$1,775 and $1,662, respectively) 89,570 96,074 (6,504)
Accrued interest receivable 1,808 1,800 8
Premises and equipment, net 5,071 4,917 154
Deferred income tax asset 669 579 90
Other assets 1,057 910 147
- --------------------------------------------------------------------------------
Total assets $197,071 $200,522 $ (3,451)
- --------------------------------------------------------------------------------
LIABILITIES
Deposits:
Demand deposits $ 4,442 $ 3,027 $ 1,415
NOW deposits 7,584 7,955 (371)
Savings deposits 27,289 26,823 466
Money-market deposits 35,828 33,629 2,199
Time deposits 91,140 99,033 (7,893)
-------- -------- --------
Total deposits 166,283 170,467 (4,184)
Convertible debentures 6,990 7,000 (10)
Accrued interest on convertible debentures 444 299 145
Mortgage escrow funds 1,101 870 231
Official checks outstanding 1,532 1,572 (40)
Other liabilities 845 747 98
- --------------------------------------------------------------------------------
Total liabilities 177,195 180,955 (3,760)
- --------------------------------------------------------------------------------
Minority interest 17 23 (6)
STOCKHOLDERS' EQUITY
Preferred stock (300,000 shares
authorized, none issued) -- -- --
Class A common stock ($1.00 par value,
7,500,000 shares authorized,
2,186,088 and 2,184,515 shares
issued and outstanding, respectively) 2,186 2,184 2
Class B common stock ($1.00 par value,
700,000 shares authorized, 305,000
and 300,000 issued and outstanding,
respectively) 305 300 5
Additional paid-in-capital, common 13,831 13,789 42
Retained earnings 3,537 3,271 266
- --------------------------------------------------------------------------------
Total stockholders' equity 19,859 19,544 315
- --------------------------------------------------------------------------------
Total liabilities, minority interest
and stockholders' equity $197,071 $200,522 $ (3,451)
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Earnings
(Unaudited)
For the Quarter Ended
March 31,
---------
($ in thousands, except per share data) 1999 1998 Change
- --------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans receivable $ 2,141 $ 1,793 $ 348
Securities 1,263 1,029 234
Other interest-earning assets 72 70 2
- --------------------------------------------------------------------------------
Total interest and dividend income 3,476 2,892 584
- --------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 2,016 1,838 178
Convertible debentures 155 -- 155
- --------------------------------------------------------------------------------
Total interest expense 2,171 1,838 333
- --------------------------------------------------------------------------------
Net interest and dividend income 1,305 1,054 251
Provision for loan loss reserves 112 100 12
- --------------------------------------------------------------------------------
Net interest and dividend income
after provision for loan loss reserves 1,193 954 239
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Customer service fees 32 26 6
Income from mortgage activities 90 37 53
All other 1 2 (1)
- --------------------------------------------------------------------------------
Total noninterest income 123 65 58
- --------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 350 246 104
Occupancy and equipment, net 107 97 10
Advertising and promotion 7 8 (1)
Professional fees and services 50 61 (11)
Stationery, printing and supplies 40 27 13
All other 93 70 23
- --------------------------------------------------------------------------------
Total noninterest expenses 647 509 138
- --------------------------------------------------------------------------------
Earnings before income taxes and
change in accounting principle 669 510 159
Provision for income taxes (275) (202) (73)
Cumulative effect of change in
accounting principle (note 6) (128) -- (128)
- --------------------------------------------------------------------------------
Net earnings $ 266 $ 308 $ (42)
- --------------------------------------------------------------------------------
Basic earnings per share:
Earnings before change in
accounting principle $ 0.16 $ 0.13 $ 0.03
Cumulative effect of change
in accounting principle (0.05) -- (0.05)
- --------------------------------------------------------------------------------
Net earnings per share $ 0.11 $ 0.13 $ (0.02)
- --------------------------------------------------------------------------------
Diluted earnings per share:
Earnings before change in
accounting principle $ 0.14 $ 0.09 $ 0.05
Cumulative effect of change in
accounting principle (0.04) -- (0.04)
- --------------------------------------------------------------------------------
Net earnings per share $ 0.10 $ 0.09 $ 0.01
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
For the Quarter Ended
March 31,
---------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
CLASS A COMMON STOCK
Balance at beginning of period $ 2,184 $ 2,124
Issuance of 510 shares in exchange
for common stock of minority
stockholders of Intervest Bank 1 --
Issuance of 1,063 shares upon the
conversion of debentures 1 --
Issuance of 12,250 shares upon
exercise of warrants in 1998 -- 12
- --------------------------------------------------------------------------------
Balance at end of period 2,186 2,136
- --------------------------------------------------------------------------------
CLASS B COMMON STOCK
Balance at beginning of period 300 300
Issuance of 5,000 shares upon
the exercise of warrants 5 --
- --------------------------------------------------------------------------------
Balance at end of period 305 300
- --------------------------------------------------------------------------------
ADDITIONAL PAID-IN-CAPITAL, COMMON
Balance at beginning of period 13,789 13,360
Issuance of 510 shares in exchange
for common stock of minority
stockholders of Intervest Bank 6 --
Issuance of 1,063 shares upon the
conversion of a debenture,
net of issuance costs 2 --
Compensation related to issuance
of stock warrants 6 --
Issuance of 5,000 shares upon
exercise of Class B stock warrants 28 --
Issuance of 12,250 shares upon
exercise of Class A stock warrants -- 73
- --------------------------------------------------------------------------------
Balance at end of period 13,831 13,433
- --------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 3,271 1,836
Net earnings for the period 266 308
- --------------------------------------------------------------------------------
Balance at end of period 3,537 2,144
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total stockholders' equity
at end of period $19,859 $18,013
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Quarter Ended
March 31,
---------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 266 $ 308
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 79 83
Provision for loan loss reserves 112 100
Deferred income tax (benefit) expense (90) 29
Accrued interest expense on debentures 155 --
Gain on sale of mortgage loans (56) --
Compensation expense related to stock warrants 6 --
Amortization of premiums, fees and discounts, net (99) 4
Increase in accrued interest
receivable and other assets (167) (225)
(Decrease) increase in official checks outstanding (40) 169
Increase in other liabilities 88 24
- --------------------------------------------------------------------------------
Net cash provided by operating activities 254 492
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Decrease in interest-earning deposits 99 --
Maturities and calls of securities held to maturity 16,525 10,426
Purchases of securities held to maturity (19,500) (17,568)
Sales of mortgage loans 5,660 --
Repayments (originations) of loans receivable, net 886 (7,691)
Purchases of premises and equipment, net (233) (270)
- --------------------------------------------------------------------------------
Net cash provided (used) by investing activities 3,437 (15,103)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand, savings,
NOW and money-market deposits 3,709 4,741
Net (decrease) increase in time deposits (7,893) 7,501
Net increase in mortgage escrow funds 231 675
Proceeds from purchases of Federal funds -- 1,160
Proceeds from issuance of common stock,
net of issuance costs 26 85
- --------------------------------------------------------------------------------
Net cash (used) provided by financing activities (3,927) 14,162
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (236) (449)
Cash and cash equivalents at beginning of period 13,472 9,176
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,236 $ 8,727
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $2,063 $1,822
Income taxes 405 87
Noncash financing activities:
Issuance of common stock to
minority stockholders of Intervest Bank 7 --
Conversion of convertible debentures
into common stock 11 --
Compensation related to stock warrants 6 --
Interest on convertible debentures 155 --
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 1 - General
The condensed consolidated financial statements of Intervest Bancshares
Corporation and Subsidiary in this report have not been audited except for the
information derived from the audited Consolidated Balance Sheet as of December
31, 1998. The financial statements in this report should be read in conjunction
with the consolidated financial statements and related notes thereto included in
the Company's Annual Report to Stockholders on Form 10-KSB for the year ended
December 31, 1998. The consolidated financial statements include the accounts of
Intervest Bancshares Corporation, a bank holding company (the "Holding
Company"), and its subsidiary, Intervest Bank (the "Bank"). The Holding Company
and the Bank are hereafter referred to as the Company on a consolidated basis.
The Holding Company's primary business activity is the ownership of the Bank.
On April 1, 1999, the Office of the Comptroller of the Currency granted
final approval of the Holding Company's application to form "Intervest National
Bank", a newly chartered commercial bank, which is a wholly owned subsidiary of
the Holding Company. Intervest National Bank received its national charter and
opened for business on April 1, 1999. It is located at One Rockefeller Plaza in
New York City and provides full commercial banking services, including internet
banking. Intervest National Bank is a member of the Federal Reserve Banking
system and the Federal Deposit Insurance Corporation insures its deposits.
All intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, all material adjustments necessary
for a fair presentation of financial condition and results of operations for the
interim periods presented have been made. These adjustments are of a normal
recurring nature. The results of operations for the interim periods are not
necessarily indicative of results that may be expected for the entire year or
any other interim period. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual results
could differ from those estimates. Certain reclassifications have been made to
prior period amounts to conform to the current period's presentation.
Note 2 - Loan Impairment and Credit Losses
The Company monitors its loan portfolio to determine the appropriate level
of the allowance for loan loss reserves based on various factors that are
discussed on pages 22 and 23 of the Company's 1998 Annual Report on Form 10-KSB.
No loans were classified as nonaccrual or impaired during the 1999 and 1998
reporting periods in this report. The table below summarizes the activity in the
allowance for loan loss reserves:
- --------------------------------------------------------------------------------
For the Quarter Ended
March 31,
---------
($ in thousands) 1999 1998
- --------------------------------------------------------------------------------
Balance at beginning of period $1,662 $1,173
Provision for loan losses charged to operations 112 100
Recoveries 1 1
- --------------------------------------------------------------------------------
Balance at end of period $1,775 $1,274
- --------------------------------------------------------------------------------
5
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 3 - Convertible Debentures
In March 1999, a convertible debenture in the principal amount of $10,000
plus accrued interest was converted into 1,063 shares of Class A common stock at
the election of the debenture holder. The conversion price was $10 per share.
Note 4 - Earnings Per Share (EPS)
Basic EPS is calculated by dividing net earnings by the
weighted-average number of shares of common stock outstanding. Diluted EPS is
calculated by dividing adjusted net earnings by the weighted-average number of
shares of common stock outstanding and dilutive potential common stock shares
that may be outstanding in the future. Potential common stock shares may arise
from outstanding dilutive common stock warrants (as computed by the "treasury
stock method") and convertible debentures (as computed by the "if converted
method"). Diluted EPS considers the potential dilution that could occur if the
Company's outstanding stock warrants and convertible debentures were converted
into common stock that then shared in the Company's adjusted earnings (as
adjusted for interest expense, net of taxes, that would no longer occur if the
debentures were converted).
Net earnings applicable to common stock and the weighted-average number of
common shares used for basic and diluted earnings per share computations are
summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
For the Quarter Ended
March 31,
---------
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net earnings applicable to common stockholders:
Earnings before change in accounting principle $ 394,000 $ 308,000
Cumulative effect of change
in accounting principle (128,000) --
- ----------------------------------------------------------------------------------------
Net earnings applicable to common stockholders $ 266,000 $ 308,000
- ----------------------------------------------------------------------------------------
Average number of common shares outstanding 2,489,831 2,426,457
- ----------------------------------------------------------------------------------------
Per share amount:
Earnings before change in accounting principle $ 0.16 $ 0.13
Cumulative effect of change in accounting principle (0.05) --
- ----------------------------------------------------------------------------------------
Basic net earnings per share $ 0.11 $ 0.13
- ----------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Adjusted net earnings applicable to common stockholders:
Net earnings applicable to common stockholders $ 266,000 $ 308,000
Adjustment to net earnings from
assumed conversion of debentures 84,000 --
- ----------------------------------------------------------------------------------------
Adjusted net earnings for diluted
earnings per share computation $ 350,000 $ 308,000
- ----------------------------------------------------------------------------------------
Average number of common shares outstanding:
Common shares outstanding 2,489,831 2,426,457
Potential dilutive shares from conversion of warrants 310,774 846,282
Potential dilutive shares resulting
from conversion of debentures 743,433 --
- ----------------------------------------------------------------------------------------
Total average number of common shares
outstanding used for dilution 3,544,038 3,272,739
- ----------------------------------------------------------------------------------------
Per share amount:
Earnings before change in accounting principle $ 0.14 $ 0.09
Cumulative effect of change in accounting principle (0.04) --
- ----------------------------------------------------------------------------------------
Diluted net earnings per share $ 0.10 $ 0.09
- ----------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Intervest Bancshares Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
Note 5 - Regulatory Capital
The Bank is required to maintain certain minimum regulatory capital
requirements. The following is a summary at March 31, 1999 of the regulatory
capital requirements and the Bank's actual capital on a percentage basis:
<TABLE>
<CAPTION>
Ratios of Minimum To Be Considered
the Bank Requirement Well Capitalized
-------- ----------- ----------------
<S> <C> <C> <C>
Total capital to risk-weighted assets 11.62% 8.00% 10.00%
Tier 1 capital to risk-weighted assets 10.36% 4.00% 6.00%
Tier 1 capital to total average assets-leverage ratio 6.06% 4.00% 5.00%
</TABLE>
Note 6 Cumulative Effect of Change in Accounting Principle
On January 1, 1999, the Company adopted as required the AICPA's Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities". The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred.
Previously, a portion of start-up costs were generally capitalized and amortized
over a period of time.
The adoption of this statement resulted in a net charge of $128,000 in the
first quarter of 1999. The charge represents the expensing, net of a tax
benefit, of cumulative start-up costs associated with organizing Intervest
National Bank that had been capitalized through December 31, 1998, as discussed
in note 1 on page 5 of this report.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
-------
Intervest Bancshares Corporation and Subsidiary (the "Company") earned
$266,000 in the first quarter of 1999, compared to $308,000 in the first quarter
of 1998. On a diluted basis, net earnings were $0.10 per common share, compared
to $0.09 per common share in the first quarter of 1998.
Results for the 1999 first quarter were effected by the Company's adoption,
on January 1, 1999, of the AICPA's Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities". The SOP requires that all start-up costs
(except for those that are capitalizable under other generally accepted
accounting principles) be expensed as incurred. Previously, a portion of
start-up costs were generally capitalized and amortized over a period of time.
The adoption of this statement resulted in a net charge of $128,000 in the first
quarter of 1999. The charge represents the expensing, net of a tax benefit, of
cumulative start-up costs that had been capitalized through December 31, 1998,
associated with organizing Intervest National Bank that are no longer
capitalizable for financial statement purposes as a result of SOP 98-5.
Absent this change in accounting principle, the Company's net earnings for
the first quarter of 1999 would have been $394,000, an increase of 28% from
earnings reported in the same quarter last year. This increase was primarily due
to higher net interest and dividend income, partially offset by an increase in
noninterest expenses.
On April 1, 1999, the Office of the Comptroller of the Currency granted
final approval of the Holding Company's application to form "Intervest National
Bank", a newly chartered commercial bank, which is a wholly owned subsidiary of
the Holding Company. Intervest National Bank received its national charter and
opened for business on April 1, 1999. It is located at One Rockefeller Plaza in
New York City and provides full commercial banking services, including internet
banking. Intervest National Bank is a member of the Federal Reserve Banking
system and the Federal Deposit Insurance Corporation insures its deposits.
The following table shows selected ratios of the Company at the end of or
for the period indicated:
- --------------------------------------------------------------------------------
At or For the Quarter Ended
March 31, March 31,
1999 1998
- --------------------------------------------------------------------------------
Stockholder's equity to total assets 10.07% 10.89%
Average stockholder's equity to average assets 9.89% 11.77%
Return on average assets (1) 0.54% 0.77%
Return on average equity (1) 5.42% 6.55%
Average interest-earning assets to
interest-bearing liabilities 1.10x 1.12x
Net interest margin (1) 2.75% 2.77%
Noninterest expenses to average assets (1) 1.30% 1.27%
- --------------------------------------------------------------------------------
(1) Ratios have been annualized for the three months.
8
<PAGE>
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
-------------------------------------------------------------------------
Overview. Total assets at March 31, 1999 declined to $197,071,000, from
$200,522,000 at December 31, 1998. The decrease was primarily due to a decline
in loans receivable, partially offset by additional investments in securities
held to maturity. Total liabilities decreased from $180,978,000 at December 31,
1998, to $177,212,000 at March 31, 1999, reflecting a decline in deposit
liabilities.
The Company's balance sheet was comprised of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
At March 31, 1999 At December 31, 1998
----------------- --------------------
Carrying % of Carrying % of
($ in thousands) Value Total Assets Value Total Assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 13,236 6.7% $ 13,472 6.7%
Securities held to maturity, net 85,327 43.3 82,338 41.1
Loans receivable, net 89,570 45.5 96,074 47.9
All other assets 8,938 4.5 8,638 4.3
- -------------------------------------------------------------------------------------------------
Total assets $197,071 100.0% $200,522 100.0%
- -------------------------------------------------------------------------------------------------
Deposits $166,283 84.4% $170,467 85.0%
Convertible debentures 6,990 3.5 7,000 3.5
All other liabilities 3,939 2.0 3,511 1.8
- -------------------------------------------------------------------------------------------------
Total liabilities 177,212 89.9 180,978 90.3
- -------------------------------------------------------------------------------------------------
Stockholders' equity 19,859 10.1 19,544 9.7
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $197,071 100.0% $200,522 100.0%
- -------------------------------------------------------------------------------------------------
</TABLE>
Securities Held to Maturity. Securities held to maturity increased due to
purchases of U.S. government agency securities, partially offset by maturities
and calls of securities.
Loans Receivable. Loans receivable decreased due to sale of four real
estate loans (with an aggregate principal balance of $5,604,000) held by the
Holding Company, as well as principal repayments on the entire loan portfolio.
These reductions exceeded new loan originations during the quarter. The sale of
the loans was made by the Holding Company in order to increase its liquidity in
anticipation of funding Intervest National Bank's initial capital on April 1,
1999. The loans were sold to Intervest Corporation of New York, a related party,
at estimated fair value. At March 31, 1999 and December 31, 1998, the Company
did not have any loans on a nonaccrual status or classified as impaired.
Allowance for Loan Loss Reserves. The Company monitors its loan portfolio
to determine the appropriate level of the allowance for loan loss reserves based
on various factors that are discussed on pages 22 and 23 of the Company's 1998
Annual Report on Form 10-KSB. At March 31, 1999, the allowance amounted to
$1,775,000, compared to $1,662,000 at year-end 1998. The increase reflected
management's intent to maintain the allowance at a level it believes to be
adequate.
All Other Assets. All other assets increased largely due to purchases of
fixed assets and other assets in connection with organizing Intervest National
Bank, and a higher level of deferred tax benefits.
Deposits. Deposit liabilities decreased due to net deposit outflows,
which management attributes to a decline in rates offered by the Bank for
deposits. At March 31, 1999, time deposit accounts totaled $91,140,000 and
demand deposit, savings, NOW and money-market accounts aggregated $75,143,000.
This compared to deposits of $99,033,000 and $71,434,000, respectively, at
December 31, 1998. Time deposits represented 55% of total deposits at March 31,
1999, compared to 58% at year-end 1998.
9
<PAGE>
All Other Liabilities. All other liabilities increased largely due to a
higher level of mortgage escrow funds, which represent advance payments by
borrowers for taxes and insurance, and an increase in accrued interest payable
on convertible debentures outstanding.
Stockholders' Equity and Regulatory Capital. Stockholders' equity increased
almost entirely as a result of net income of $266,000, the issuance of 1,063
shares of Class A common stock upon the conversion of a convertible debenture,
510 Class A shares in exchange for the shares of minority shareholders of the
Bank, and the issuance of 5,000 Class B shares upon the exercise of stock
warrants. The issuance of such shares resulted in, net of issuance costs, a
$43,000 aggregate increase in stockholders' equity.
The Bank's Tier 1 leverage capital ratio was 6.06% at March 31, 1999,
compared to 6.04% at December 31, 1998. The Bank's total risk-based capital
ratio amounted to 11.62% at March 31, 1999, compared to 11.15% at year-end 1998.
The Bank is a well-capitalized institution.
Liquidity and Capital Resources
-------------------------------
The Company manages its liquidity position on a daily basis to assure that
funds are available to meet operations, loan and investment funding commitments,
deposit withdrawals and the repayment of borrowed funds. The Company's primary
sources of funds consist of: retail deposits obtained through the Bank's branch
offices; amortization, satisfactions and repayments of loans; the maturities and
calls of securities; and cash provided by operating activities. For additional
information about the cash flows from the Company's operating, investing and
financing activities, see the condensed consolidated statements of cash flows on
page 4 of this report. At March 31, 1999, the Company's total commitment to lend
and invest aggregated $5,600,000. Based on its cash flow projections, the
Company believes that it can fund all of its outstanding commitments and future
capital expenditures from the aforementioned sources of funds.
On April 1, 1999, the Holding Company acquired all the outstanding common
stock of Intervest National Bank for $9,000,000 in cash, which represents the
new bank's initial capital base. For additional discussion of Intervest National
Bank, see page 8 of this report.
Interest Rate Risk
------------------
Interest rate risk arises from differences in the repricing of assets
and liabilities within a given time period. The principal objective of the
Company's asset/liability management strategy is to minimize its exposure to
changes in interest rates. The Company uses gap analysis, which measures the
difference between interest-earning assets and interest-bearing liabilities that
mature or reprice within a given time period, to monitor its interest rate
sensitivity. At March 31, 1999, the Company's one-year negative interest-rate
sensitivity gap was $81,283,000, or 41.2% of total assets, compared to
$73,637,000, or 36.7%, at December 31, 1998. For a further discussion of
interest rate risk and gap analysis, including all the assumptions used in
developing the Company's one-year gap position, see the Company's 1998 Annual
Report on Form 10-KSB, pages 26 and 27.
10
<PAGE>
Year 2000 Compliance
--------------------
The Year 2000 issue is the result of computer programs, which were written
using two digits rather than four digits to define the applicable year. As a
result, such programs may recognize a date using "00" as the year 1900 instead
of the year 2000, which could result in system failures or miscalculations.
The Company is aware of the many areas affected by the Year 2000 computer
issue, as addressed by the Federal Financial Institutions Examination Council in
its interagency statement, which provided an outline for institutions to
effectively manage the Year 2000 challenges. The Board of Directors has approved
a Year 2000 plan, which addresses Year 2000 issues therein, including awareness,
assessment, renovation, validation, implementation, testing and contingency
planning. The Company has formed a Year 2000 committee that is responsible for
the oversight of completing the Year 2000 plan on a timely basis.
The Company has completed its testing phase of mission critical systems and
has determined that the costs of making modifications to correct any Year 2000
issues will not materially affect reported operating results. The Company's
contingency plan relative to Year 2000 issues has been finalized and will be
tested prior to June 30, 1999. During this testing phase, management will
determine if it is necessary to develop a worst case scenario contingency plan
resulting from the lack of electrical supply and or telephone service. Based on
testing results, the Company's mission critical systems have been deemed to be
Year 2000 compliant and, therefore, a contingency plan has not been developed
with respect to those systems. With regards to non-mission critical internal
systems, the Company's contingency plans are to replace those systems that test
as being noncompliant. Alternatively, some systems could be handled manually on
an interim basis. Should outside service providers not be able to provide
compliant systems, the Company will terminate those relationships and transfer
to Year 2000 compliant vendors
The Company also recognizes the importance of determining that its
borrowers are facing the Year 2000 problem in a timely manner to avoid
deterioration of the loan portfolio solely due to this issue. All material
relationships have been identified and questionnaires have been completed to
assess the inherent risks. Deposit customers have received statement stuffers
and informational material in this regard. The Company plans to work on a
one-on-one basis with any borrower who has been identified as having high Year
2000 risk exposure.
Although management believes that the Company will not incur material costs
associated with the Year 2000 issue, there can be no assurances that all
hardware and software that the Company will use will be Year 2000 compliant.
Management cannot predict the amount of financial difficulties it may incur due
to the Company's customers and vendors inability to perform according to their
agreements with the Company or the effects that other third parties may cause as
a result of this issue. Therefore, there can be no assurance that the failure or
delay of others to address the Year 2000 issue or that the costs involved in
such process will not have a material adverse effect on the Company's business,
financial condition, and results of operations.
It is anticipated that the Company's deposit customers will have
increased demands for cash in the latter part of 1999 and correspondingly, the
Company will maintain its liquidity levels to meet any increased demand.
11
<PAGE>
Comparison of Results of Operations for the Quarters Ended
March 31, 1999 and 1998
- --------------------------------------------------------------------------------
Overview. The Company had net earnings of $266,000 in the first quarter of
1999, compared to $308,000 in the first quarter of 1998. On a diluted per share
basis, net earnings was $0.10, compared to $0.09 in the first quarter of 1998.
Results for the 1999 first quarter included a one-time charge related
to the Company's adoption, on January 1, 1999, of the AICPA's Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities". The SOP
requires that all start-up costs (except for those that are capitalizable under
other generally accepted accounting principles) be expensed as incurred.
Previously, a portion of start-up costs were generally capitalized and amortized
over a period of time. The adoption of this statement resulted in a net charge
of $128,000 in the first quarter of 1999. The charge represents the expensing,
net of a tax benefit, of cumulative start-up costs that had been capitalized
through December 31, 1998, associated with organizing Intervest National Bank, a
wholly owned subsidiary of Intervest Bancshares Corporation, that are no longer
capitalizable for financial statement purposes as a result of SOP 98-5.
Absent this change in accounting principle, the Company's earnings for the
first quarter of 1999 would have been $394,000, an increase of 28% from earnings
reported in the same quarter last year. This increase was primarily due to a
$251,000 increase in net interest and dividend income, partially offset by an
increase in noninterest expenses of $138,000.
Net Interest and Dividend Income. Net interest and dividend income is the
Company's largest source of earnings and is influenced primarily by the amount,
distribution and repricing characteristics of its interest-earning assets and
interest-bearing liabilities as well as by the relative levels and movements of
interest rates.
The table that follows on the next page sets forth information on average
assets, liabilities and stockholders equity; yields earned on interest-earning
assets; and rates paid on interest-bearing liabilities for the periods
indicated. The yields and rates shown are based on a computation of annualized
income/expense for each period divided by average interest-earning
assets/interest-bearing liabilities during each period. Certain yields and rates
shown are adjusted for related fee income or expense. Average balances are
derived from daily balances. Net interest margin is computed by dividing
annualized net interest and dividend income by the average of total
interest-earning assets during each period.
12
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
-------------------------------------------------------------------
March 31, 1999 March 31, 1998
-------------------------------- --------------------------------
Average Interest Yield/ Average Interest Yield/
($ in thousands) Balance Inc./Exp. Rate Balance Inc./Exp. Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans $ 96,686 $ 2,141 8.86% $ 79,499 $ 1,793 9.02%
Securities 86,328 1,263 5.85 66,939 1,029 6.15
Other interest-earning assets 6,725 72 4.28 5,664 70 4.94
- ----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 189,739 $ 3,476 7.33% 152,102 $ 2,892 7.61%
- ----------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 8,591 7,672
- ----------------------------------------------------------------------------------------------------------------------
Total assets $198,330 $159,774
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW deposits $ 7,321 $ 56 3.06% $ 4,852 $ 44 3.63%
Savings deposits 26,942 279 4.14 14,422 173 4.80
Money-market deposits 36,102 387 4.29 17,965 216 4.80
Time deposits 94,349 1,294 5.49 98,910 1,405 5.68
------------------------------------------------------------------------
Total deposit accounts 164,714 2,016 4.90 136,149 1,838 5.40
------------------------------------------------------------------------
Convertible debentures and accrued interest 7,351 155 8.43 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 172,065 $ 2,171 5.05% 136,149 $ 1,838 5.40%
- ----------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 3,737 3,157
Noninterest-bearing liabilities 2,909 1,656
Stockholders' equity 19,619 18,812
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $198,330 $159,774
- ----------------------------------------------------------------------------------------------------------------------
Net interest and dividend income/spread $ 1,305 2.28% $ 1,054 2.21%
- ----------------------------------------------------------------------------------------------------------------------
Net interest-earning assets/margin $ 17,674 2.75% $ 15,953 2.77%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of total interest-earning assets
to total interest-bearing liabilities 1.10x 1.12x
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Net interest and dividend income increased to $1,305,000 in the first
quarter of 1999, from $1,054,000 in the 1998 first quarter. The increase was
entirely due to growth in the Company's balance sheet. The Company's net
interest margin was 2.75% for the first quarter of 1999, relatively unchanged
from the same period of 1998, as an increase in the Company's interest rate
spread was offset by a decline in the ratio of its average interest-earning
assets to average interest-bearing liabilities.
The yield on the Company's earning assets declined by 28 basis points
due to calls of higher-yielding securities, new purchases of securities and
originations of loans at lower rates, rate resets downward on the loan portfolio
and an increase in the percentage of earning assets held as securities.
Investments in securities as well as other short-term investments have lower
yields than the Company's loan portfolio. The Company's cost of funds declined
by 35 basis points due to lower rates paid on deposit accounts as well as an
increase in lower-cost deposits held in checking, savings and money-market
accounts. These factors were partially offset by the higher-cost funds obtained
through the sale of convertible debentures in June 1998.
The table that follows sets forth information regarding changes in interest
and dividend income and interest expense of the Company for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
rate (change in rate multiplied by prior volume), (2) changes in volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume).
13
<PAGE>
- --------------------------------------------------------------------------------
For the Quarter Ended March 31, 1999 vs. 1998
---------------------------------------------
Increase (Decrease) Due to Change in:
-------------------------------------
($ in thousands) Rate Volume Rate/Volume Total
- --------------------------------------------------------------------------------
Interest-earning assets:
Loans $(32) $ 388 $ (8) $ 348
Securities (50) 298 (14) 234
Other interest-earning assets (9) 13 (2) 2
- --------------------------------------------------------------------------------
Total interest-earning assets (91) 699 (24) 584
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
NOW deposits (7) 22 (3) 12
Savings deposits (24) 150 (20) 106
Money-market deposits (23) 218 (24) 171
Time deposits (47) (65) 1 (111)
-------------------------------------
Total deposit accounts (101) 325 (46) 178
Convertible debentures -- -- 155 155
- --------------------------------------------------------------------------------
Total interest-bearing liabilities (101) 325 109 333
- --------------------------------------------------------------------------------
Net change in interest and dividend income $ 10 $ 374 $(133) $ 251
- --------------------------------------------------------------------------------
Provision for Loan Loss Reserves. The provision for loan loss reserves is
based on management's ongoing assessment of the adequacy of the allowance for
loan loss reserves. The provision amounted to $112,000 in the first quarter of
1999, compared to $100,000 in the first quarter of 1998.
Noninterest Income. Total noninterest income increased to $123,000 in the
first quarter of 1999, from $65,000 in the first quarter of 1998. The increase
from last year's period was entirely due to a $56,000 gain from the sale of
mortgage loans (see page 9 under the caption Loans Receivable).
Noninterest Expenses. Total noninterest expenses increased to $647,000 in
the first quarter of 1999, from $509,000 in the first quarter of 1998. The
increase over last year's period was largely due to an increase in salaries and
employee benefits, resulting primarily from increased staff due to Intervest
National Bank (which opened on April 1, 1999) and normal salary increases.
Provision for Income Taxes. The provision for income taxes increased to
$275,000 in the first quarter of 1999, from $202,000 in the first quarter of
1998, due to higher pre-tax earnings. The Companys effective tax rate (inclusive
of state and local taxes) amounted to 41.1% in the first quarter of 1999,
compared to 39.6% in the same quarter of 1998.
Cumulative Effect of Change in Accounting Principle. The cumulative effect
of change in accounting principle represents the required adoption, on January
1, 1999, of the AICPA's Statement of Position (SOP) 98-5, "Reporting on the
Costs of Start-Up Activities", which applies to all companies except as provided
for therein. The SOP requires that all start-up costs (except for those that are
capitalizable under other generally accepted accounting principles) be expensed
as incurred. Previously, a portion of start-up costs were generally capitalized
and amortized over a period of time. The adoption of this statement resulted the
immediate expensing of $193,000 in start-up costs capitalized as of December 31,
1998 in connection with organizing Intervest National Bank, a wholly owned
subsidiary of Intervest Bancshares Corporation that was chartered and began
business on April 1, 1999. A deferred tax benefit of $65,000 was recorded in
conjunction with the expensing of the start-up costs.
14
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of the Company's asset and liability management strategy, the
fair value of its financial instruments as well as the effects of interest rate
risk, see pages 26 through 29 and 51 and 52 of the Company's Annual Report on
Form 10-KSB for the Year Ended December 31, 1998. At March 31, 1999, the
Company's one-year negative interest-rate sensitivity gap was $81,283,000, or
41.2% of total assets, compared to $73,637,000, or 36.7%, at December 31, 1998.
There has been no significant change in the market value of the Company's
financial instruments at March 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index (numbered in accordance with Item 601 of Regulation S-B)
27- Financial Data Schedule (For SEC Purposes only)
(b) No Reports on Form 8-K were filed during the quarter ended March 31,
1999.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERVEST BANCSHARES CORPORATION AND SUBSIDIARY
Date: May 9, 1999 By: /s/ Lowell S. Dansker
---------------------
Lowell S. Dansker, President and Treasurer
(Chief Financial Officer)
Date: May 9, 1999 By: /s/ Lawrence G. Bergman
---------------------
Lawrence G. Bergman, Vice President and Secretary
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,171
<INT-BEARING-DEPOSITS> 9,611
<FED-FUNDS-SOLD> 554
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 85,327
<INVESTMENTS-MARKET> 84,550
<LOANS> 91,345
<ALLOWANCE> 1,775
<TOTAL-ASSETS> 197,071
<DEPOSITS> 166,283
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,939
<LONG-TERM> 6,990
0
0
<COMMON> 2,491
<OTHER-SE> 17,368
<TOTAL-LIABILITIES-AND-EQUITY> 197,071
<INTEREST-LOAN> 2,141
<INTEREST-INVEST> 1,263
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 3,476
<INTEREST-DEPOSIT> 2,016
<INTEREST-EXPENSE> 2,171
<INTEREST-INCOME-NET> 1,305
<LOAN-LOSSES> 112
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 647
<INCOME-PRETAX> 669
<INCOME-PRE-EXTRAORDINARY> 669
<EXTRAORDINARY> 0
<CHANGES> (128)
<NET-INCOME> 266
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
<YIELD-ACTUAL> 7.33
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,662
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,775
<ALLOWANCE-DOMESTIC> 1,775
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
